Barnes & Noble CEO resigns after Nook sales slump

NEW YORK Mon Jul 8, 2013 9:29pm EDT

Customers enter a Barnes and Noble store in New York June 25, 2013. REUTERS/Brendan McDermid

Customers enter a Barnes and Noble store in New York June 25, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Barnes & Noble Inc (BKS.N) CEO William Lynch resigned on Monday, an acknowledgement that its digital division Nook has failed to compete successfully in the e-reader and tablet markets and possibly presaging a further shake-up in the company.

Chairman and founder Leonard Riggio, the largest shareholder of Barnes & Noble, said the company is reviewing its strategic plan and announced a series of executive changes.

The new appointments suggest Riggio may be stepping up efforts to re-organize the company by separating the Nook business from the chain of hundreds of Barnes & Noble physical stores.

But with Microsoft Corp (MSFT.O) and Pearson Plc (PSON.L) in the wings as minority stakeholders in Nook, it's not clear how this will be all be resolved, analysts said.

Signs that Barnes & Noble had come to a turning point with Nook came in the latest quarter, when it reported dismal results, led by a 34 percent drop in Nook sales. It also said it would stop making Nook tablets, marking the end of a costly attempt to compete with Amazon (AMZN.O), Apple (AAPL.O) and Google (GOOG.O) in the tablet wars.

The operator of the largest chain of bookstores in the United States, has been hit hard by Amazon, which has won market share by selling physical books more cheaply online. Amazon, the world's largest Internet retailer, inflicted more damage when its Kindle e-reader became a hit and e-book sales took off about five years ago.

Borders, another big bookstore chain, went bust in 2011. But Barnes & Noble survived to challenge Amazon in the e-book market. Lynch became CEO about three years ago and led the development of the Nook e-book store, e-readers and tablets.

"Lynch was highly instrumental in making Nook a centerpiece in Barnes & Noble's broader operational strategy," Alan Rifkin, an analyst at Barclays, wrote in a note to investors on Monday.

"With this announcement, Barnes & Noble is, in our view, signaling that it is attempting to reduce its dependence upon the Nook."

The company did not name a new CEO but Chief Financial Officer Michael Huseby was named chief executive of the Nook Media unit and president of the parent company. Max Roberts, CEO of the company's education business, will report to Huseby. Huseby and Mitchell Klipper, CEO of the retail stores, will report to Riggio.

Shares in the Barnes & Noble fell 2.6 percent to $17.20 in after-market trading on Monday.

MINORITY INTERESTS

Last year, Microsoft acquired 17 percent of Nook in a deal that valued the unit at $1.7 billion. In December, British publisher Pearson bought a 5 percent stake in the business, valuing it at $1.8 billion.

Barnes & Noble shares surged more than 20 percent in May after technology website TechCrunch reported that Microsoft was considering an offer to buy the tablet and e-book parts of the Nook business. The stock has since given up those gains.

Meanwhile, Riggio said earlier this year that he wanted to buy Barnes & Noble's chain of nearly 700 namesake bookstores from the parent company.

"The next step is Chairman Leonard Riggio deciding if he's going to bid to buy the retail division and from that they'll then decide what to do with the Nook," Maxim Group analyst John Tinker said.

"Do they close it down? Do they reintegrate it back in the company? What happens to minority investors, Microsoft and Pearson? It all can be driven by the Chairman," he added.

Barnes & Noble spokeswoman Mary Ellen Keating declined to comment on Riggio's plans.

The company is looking for a partner to make Nook color tablets under a "co-branding" agreement. It will continue to make black and white Nook e-readers and will still sell the tablets in its stores, she said.

(Additional reporting by Arpita Mukherjee in Bangalore; Editing by Carol Bishopric, Leslie Gevirtz and Edwina Gibbs)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
Barnes and Noble is to books what BlockBuster was to videos.

Jul 08, 2013 10:50pm EDT  --  Report as abuse
Steve.Patton wrote:
I believe that they failed to recognize that the tablet market competition goes well beyond Amazon, not to mention the do-all expectations of the tablet market customer’s expectations. IMHo,had they added front and back cameras when they intro’ed the HD series they would have topped the sales on tablets. The HD is a spectacularly capable tablet, and deserves to be at the Front of the class, but a failure to recognize the market,s expectations holds it back. One issue is easily remediable with software patches: the restrictions on some Android apps. The Nook HD is hands down the superior tablet in in all other respects. It might help to also lift the restriction on certain Android apps which currently are blocked.The only failure for it as a tablet in the competition with apple are the Cameras and the app limitations. The Apple mini is still a hundred bucks higher and much heavier. as for Amazon a lot may be due to the Prime tie-in that allows free loaner books through its Kindle. Not hard to remedy either. It may be that Microsoft recognizes these short comings which could be their reason for stepping in.

Jul 10, 2013 11:08am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.